Gold rebounded on Friday as markets weighed the chances of a US–Iran agreement, with XAU/USD trading near $4,583 after falling to a two-month low of $4,366 on Thursday. Risk appetite improved after Donald Trump said the naval blockade would be lifted and that he would meet in the Situation Room to make a “final determination” on Iran, following an Axios report of a 60-day memorandum of understanding that would extend the ceasefire and reopen the Strait of Hormuz, although Tasnim said the deal is neither finalised nor confirmed. Oil softened on the developments, with WTI around $85 a barrel and set for its first monthly decline in five months, yet elevated crude prices have kept inflation in focus.
The push and pull between improved sentiment and monetary policy left the US Dollar weaker, with DXY around 98.80 after a seven-week high of 99.54 on Thursday. Gold was still on track for a third monthly drop as hawkish Fed messaging, reinforced by PCE data and the 2% inflation target, supported a ‘higher for longer’ rates outlook. In technical terms, price sat just below the 20-day Bollinger SMA at $4,587.97, with the upper band near $4,761 and the lower band around $4,414.50; RSI was near 48 and ADX around 24, pointing to consolidation.
Trading Volatility in Energy Markets
Given the high uncertainty surrounding the US-Iran deal, we believe volatility is the most direct theme to trade in the coming weeks. The CBOE Crude Oil Volatility Index (OVX) has already jumped over 15% this past week, showing that the options market is pricing in a significant move for WTI crude. We see value in using options strategies like straddles, which profit from a large price swing in either direction, regardless of whether the deal succeeds or fails.
This situation feels similar to the lead-up to the 2015 JCPOA agreement. Back then, WTI crude dropped nearly 20% in the month the final deal was announced, highlighting how quickly geopolitical de-escalation can reprice the energy market. A failure of these new talks could just as easily send prices back toward the $100 mark we saw earlier this year.
Options Outlook for Gold and the US Dollar
For gold, the picture is much less clear, making range-bound strategies more appealing. While a weaker dollar from a successful deal is supportive, the corresponding decrease in geopolitical risk acts as a headwind. We think selling premium through strategies like an iron condor on XAU/USD, which profits if the metal stays between roughly $4,400 and $4,800, is a prudent approach.
The Federal Reserve’s hawkish stance will continue to cap gold’s potential. The latest Core PCE inflation reading of 4.1% is more than double the Fed’s target, giving policymakers every reason to maintain restrictive policy. This high-rate environment increases the opportunity cost of holding non-yielding gold, limiting its appeal even as a hedge.
The US Dollar is caught in a similar tug-of-war, pulled down by improving risk sentiment but supported by high interest rate expectations. This conflict keeps us cautious about taking a strong directional view on the DXY. Instead, we are looking at options on currency futures to hedge existing exposures or make tactical plays on short-term movements.
